12/19/2008 @ 3:49PM

Ford Will Need Help, Too

During the auto industry bailout hearings on Capitol Hill,
Ford Motor
Chief Executive Alan Mulally sat shoulder-to-shoulder with the bosses of
General Motors
and Chrysler like a line of delinquent schoolboys.

But now that the Bush administration has agreed to lend GM and Chrysler $17.4 billion to stave off bankruptcy, Mulally is running as fast as he can from those other guys. “We’re in a different place,” says Mulally, whose company had $19 billion in cash on Sept. 30 and isn’t seeking an immediate cash infusion.

Don’t be so sure. Ford, which lost $8.7 billion through September, may yet need taxpayer money. It is burning more than $2 billion a month and has asked for a $9 billion line of credit as a safety net in case industry conditions worsen. And it’s looking more and more like Ford will need it.

Ford’s financial projections are based on a rosier industry sales forecast–12.5 million vehicles (including heavy trucks) in 2009 and 14.5 million in 2010–than most industry experts predict. JD Power & Associates is forecasting 11.4 million light-vehicle sales in 2009 and 13.6 million for 2010.

IHS Global Insight is even more pessimistic. It now forecasts sales of 10 million to 10.5 million light vehicles for 2009, and 12.5 million units for 2010. GM’s best case scenario is 12 million units in 2009 and 14 million in 2010, though its business plan is based on more conservative estimates. Last year, the industry sold 16.1 million light vehicles.

Self-interest required Mulally to stand up for his weaker competitors. A collapse of one or both would hurt suppliers and could potentially bring down Ford as well. But in the meantime, Ford is shrewdly portraying itself as the healthiest U.S. carmaker and quietly stealing market share from its crosstown rivals. Ford gained 1.4 points of market share in November, while GM lost 1.6 points and Chrysler lost 2.3 points.

As long as America thinks it is the only U.S. carmaker not going bankrupt, Ford is happy to let GM and Chrysler carry the bailout flag. Ford knows that whatever concessions GM wrests from the United Auto Workers as a condition of the bailout will also apply at Ford. That will only strengthen Ford as it comes out of the current downturn.

“It’s better for our image to be seen as a company that is pulling itself up by its bootstraps,” says executive chairman William C. Ford Jr., great-grandson of company founder Henry Ford.

“Ford is playing a game here, and it’s really smart,” says IHS Global Insight analyst John Wolkonowicz. “Ford is going to come out of this the best, no matter what happens.”

Ford’s president of the Americas, Mark Fields, insists Ford is not trying to rub salt in GM’s or Chrysler’s wounds. “We’re walking a very fine line here. It’s very important that we support the industry. But it’s also important to communicate that the Ford story is different.”

The biggest difference between Ford and General Motors
is that Ford mortgaged virtually all of its assets in 2006 to obtain a $23 billion loan just before the bank door slammed. As a consequence, it’s now paying $400 interest on every car it sells.

To be sure, Ford is doing many things right. It is dumping non-core brands, modernizing factories and overhauling product development to take advantage of global strengths. It has several knock-out products on the horizon, including a drastically improved Ford Taurus, a line of new fuel-efficient engines and several new small cars it is bringing over from Europe.

But it has much work to do. And until it can figure out a way to grow profitably, Ford will be merely the valedictorian in the reformatory school.